Macroeconomics Review Questions
Course Introduction
Macroeconomics is the study of the economy as a whole, focusing on aggregate measures such as national income, output, employment, inflation, and economic growth. This course introduces students to key concepts and models that explain how economies function at a large scale, including topics such as fiscal and monetary policy, the role of government and central banks, international trade, and the dynamics of business cycles. By analyzing real-world data and current events, students will develop an understanding of how macroeconomic theory is applied to address issues like unemployment, price stability, and long-term economic development.
Recommended Textbook
Essentials of Economics 3rd Edition by Glenn Hubbard
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Chapter 1: Economics: Foundations and Models
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Q1) The three fundamental questions that any economy must address are
A) what will be the prices of goods and services; how will these goods and services be produced; and who will receive them.
B) what goods and services will be produced; how will these goods and services be produced; and who receives them.
C) who gets jobs; what wages do workers earn; and who owns what property.
D) how much will be saved; what will be produced; and how can these goods and services be fairly distributed.
Answer: B
Q2) If a straight line passes through the point x = 14 and y = 3 and also through the point x = 4 and y = 10,the slope of this line is
A) negative 11 divided by 6.
B) seven tenths.
C) negative seven tenths.
D) 6 divided by 11.
Answer: C
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Q1) A major factor contributing to the slow growth rate of less developed economies is
A) the lack of well-defined and enforceable property rights.
B) the lack of natural resources.
C) the lack of workers.
D) the high rate of illiteracy.
Answer: A
Q2) Refer to Table 2-1.Assume Tomaso's Trattoria only produces pizzas and calzones.A combination of 24 pizzas and 30 calzones would appear
A) along Tomaso's production possibility frontier.
B) inside Tomaso's production possibility frontier.
C) outside Tomaso's production possibility frontier.
D) at the horizontal intercept of Tomaso's production possibility frontier.
Answer: A
Q3) Refer to Figure 2-1.Point C is
A) technically efficient.
B) unattainable with current resources.
C) inefficient in that not all resources are being used.
D) the equilibrium output combination.
Answer: B
Page 4
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Q1) Technological advances have resulted in lower prices for digital cameras.What is the impact of this on the market for traditional (non-digital)cameras?
A) The demand curve for traditional cameras shifts to the right.
B) The supply curve for traditional cameras shifts to the right.
C) The demand curve for traditional cameras shifts to the left.
D) The supply curve for traditional cameras shifts to the left.
Answer: C
Q2) Refer to Figure 3-2.An increase in the price of substitutes in production would be represented by a movement from
A) A to B.
B) B to A.
C) S<sub>1</sub> to S<sub>2</sub>.
D) S<sub>2</sub> to S<sub>1</sub>.
Answer: D
Q3) An increase in the price of inputs will cause the supply curve for a product to shift to the right.
A)True
B)False
Answer: False
Page 5
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Chapter 4: Market Efficiency and Market Failure
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Sample Questions
Q1) When the price of tortilla chips rose by 10 per cent,the quantity of tortilla chips sold fell 4 per cent.This indicates that the demand for tortilla chips is
A) inelastic.
B) elastic.
C) unit-elastic.
D) perfectly inelastic.
Q2) If the cross-price elasticity of demand between beer and wine is 0.31,then beer and wine are
A) complements.
B) price inelastic goods.
C) substitutes.
D) necessities.
Q3) Refer to Figure 4-3.At the midpoint of the demand curve,in absolute value
A) the price elasticity coefficient is at a maximum.
B) the price elasticity coefficient is at a minimum.
C) the price elasticity coefficient is zero.
D) the price elasticity coefficient is one.
Q4) What factors would make you more sensitive or less sensitive to price when purchasing petrol?
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Chapter 5: The Economics of Healthcare
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Q1) Refer to Table 5-4.If a minimum wage of $11.50 an hour is mandated,what is the quantity of labour demanded?
A) 40 000
B) 570 000
C) 610 000
D) 1 180 000
Q2) Refer to Figure 5-4.The figure above represents the market for pecans.Assume that this is a competitive market.At a price of $3,
A) the marginal cost of pecans is greater than the marginal benefit; therefore, output is inefficiently low.
B) producers should raise the price to $9 in order to sell the quantity demanded of 12 000.
C) the marginal benefit of pecans is greater than the marginal cost; therefore, output is inefficiently high.
D) the marginal benefit of pecans is greater than the marginal cost; therefore, output is inefficiently low.
Q3) What is marginal benefit? Which curve is also referred to as a marginal benefit curve?
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Chapter 6: Firms,the Stock Market,and Corporate Governance
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Sample Questions
Q1) Which of the following statements is false?
A) When marginal cost equals average total cost, average total cost is at its highest value.
B) The marginal cost curve intersects the average variable cost curve and the average total cost curve at their minimum points.
C) The difference between average total cost and average fixed cost is average variable cost.
D) Firms often refer to the process of lowering average fixed cost as 'spreading the overhead.'
Q2) An explicit cost is defined as
A) a cost that does not change as output changes.
B) a non-monetary opportunity cost.
C) a cost that involves spending money.
D) a non-monetary accounting cost.
Q3) A firm's short-run average total cost curve is parallel to its short-run average variable cost curve.
A)True
B)False
Q4) What are economies of scale? What are diseconomies of scale?
Page 8
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Chapter 7: Consumer Choice and Elasticity
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Q1) Refer to Figure 7-4.If the market price is $30 and if the firm is producing output,what is the amount of its total variable cost?
A) $7200
B) $6480
C) $5400
D) $3960
Q2) Refer to Figure 7-5.If the market price is $20,what is the average profit at the profit-maximising quantity?
A) $5
B) $6
C) $9
D) $20
Q3) Being a price taker,a perfectly competitive firm cannot receive a producer surplus in the short run.
A)True
B)False
Q4) What is meant by allocative efficiency? How does a perfectly competitive firm achieve allocative efficiency?
Q5) What is meant by the term 'long-run competitive equilibrium'?
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Chapter 8: Technology, production, and Costs
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Sample Questions
Q1) A firm that can effectively price discriminate will charge a higher price to
A) customers who have the more elastic demand for the product.
B) customers who have the more inelastic demand for the product.
C) buyers who belong to the largest market segment.
D) buyers who are members of the smallest market segment.
Q2) Refer to Figure 8-14 to answer the following questions.
a.What quantity will this monopoly produce and what price will it charge?
b.Suppose the monopoly is regulated.If the regulatory agency wants to achieve economic efficiency,what price should it require the monopoly to charge?
c.To achieve economic efficiency,what quantity will the regulated monopoly produce?
d.Will the regulated monopoly make a profit if it charges the price that will achieve economic efficiency?
e.Suppose the government decides to regulate the monopoly by imposing a price ceiling of $35.What quantity will the monopoly produce and what price will the monopoly charge?
f.With the price ceiling of $35,what profit will the monopoly earn?
Q3) What is yield management? How is yield management being used in the airline industry?
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Chapter 9: Firms in Perfectly Competitive Markets
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Q1) In most business situations where firms compete,often they can escape the prisoner's dilemma and reach the most profitable outcome.Which of the following is a reason for this?
A) Firms engage in aggressive advertising to overcome the barriers to loyalty.
B) Most games are one-shot games so firms learn from their mistakes.
C) Most games are repeated games and firms can employ retaliation strategies against those who do not cooperate.
D) Firms are constantly improving their products and anticipating changing consumer tastes.
Q2) Is a monopolistically competitive firm allocatively efficient?
A) No, because it does not produce at minimum average total cost.
B) Yes, because it produces where marginal cost equals marginal revenue.
C) No, because price is greater than marginal cost.
D) Yes, because price equals average total cost.
Q3) The entry and exit of firms in a monopolistically competitive market guarantees that A) marginal revenue equals marginal cost, and average total cost is minimised.
B) firms can earn economic profits in the long run.
C) price equals average total cost in the long run.
D) firms can earn economic profits in the short run.
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Chapter 10: Monopoly and Antitrust
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Sample Questions
Q1) In the legal sector in America,some practice areas have declined in recent years.For example,personal-injury and medical-malpractice cases have been undercut by state laws limiting class-action suits,out-of-state plaintiffs and payouts on damages,and securities class-action litigation has declined in part because of a buoyant stock market.How does this affect the market for lawyers?
A) The demand for lawyers shifts to the left.
B) The supply of lawyers shifts to the left.
C) The quantity of lawyers demanded decreases and this is represented by a movement along the demand curve.
D) Both the demand and supply curves decrease.
Q2) What is the difference between 'straight-time pay,' 'commission pay,' and 'piece-rate pay'?
Q3) Refer to Table 10-2.The marginal profit from hiring the second unit of labour is A) $4200.
B) $1960.
C) $1800.
D) $1450.
Q4) What are the three most important variables that cause the market supply curve of labour to shift?
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Chapter 11: Monopolistic Competition and Oligopoly
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Q1) When there is a negative externality,the private cost of production ________ the social cost of production.
A) is greater than B) is equal to C) eliminates D) is less than
Q2) Governments can increase the consumption of a product that creates positive externalities by
A) subsidising the production of the product so that the supply is increased and market price is reduced.
B) taxing the production and consumption of the product.
C) convincing everyone to consume the good.
D) assigning property rights to the producers of the product.
Q3) According to ________,in a market with an externality,private parties would voluntarily negotiate an efficient outcome without government intervention.
A) A. C. Pigou
B) Adam Smith
C) Ronald Coase
D) John Maynard Keynes
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Chapter 12: GDP: Measuring Total Production and Income
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Q1) What is 'potential GDP'?
Q2) Gross domestic product is the total market value of all
A) intermediate and final goods and services produced in a time period within a country.
B) final goods and services produced in a time period within a country.
C) goods but not services produced in a time period within a country.
D) final goods and services produced in a time period by citizens of a country, both within the country and by citizens working overseas.
Q3) An example of an 'intermediate good' would be
A) the bread that goes into a sandwich sold by a lunch bar.
B) a can of cool drink sold by a supermarket.
C) a microwave oven used at home.
D) the petrol purchased by consumers for their cars.
Q4) Transfer payments are not included in GDP because
A) they are not purchases of goods or services.
B) their value is included in government expenditure.
C) they do not generate income.
D) their market value is difficult to measure.
Q5) Outline the various actions the government sector should take to promote growth.
Q6) What is the economic growth model?
Page 14
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Chapter 13: Unemployment and Inflation
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Q1) Trade unions cause unemployment because the union contract wage is set
A) below the market wage, causing a shortage of labour.
B) below the market wage, causing a surplus of labour.
C) above the market wage, causing a surplus of labour.
D) above the market wage, causing a shortage of labour.
Q2) Which of the following would reduce the labour force participation rate,all else being equal?
A) An increase in the number of people in the labour force.
B) An increase in the unemployment rate.
C) A decrease in the unemployment rate.
D) An increase in the working-age population.
Q3) Describe how inflation can be costly even if it is anticipated.
Q4) Describe the three types of unemployment.
Q5) If aggregate demand continues to increase when the economy reaches full employment,demand-pull inflation will begin to decelerate.
A)True
B)False
Q6) What effect does the payment of government unemployment benefits have on the unemployment rate?
Q7) What effect do unemployment benefits have on job search?
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Chapter 14: Economic Growth, the Financial System and Business Cycles
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Q1) Why might the short-run aggregate supply curve shift to the right in the long run,following a decrease in aggregate demand?
A) Workers and firms adjust their expectations of wages and prices downward and they accept lower wages and prices.
B) Workers and firms adjust their expectations of wages and prices downward and they push for higher wages and prices.
C) Workers and firms adjust their expectations of wages and prices upward and they push for higher wages and prices.
D) Workers and firms adjust their expectations of wages and prices upward and they accept lower wages and prices.
Q2) When the short-run aggregate supply curve and the aggregate demand curve intersect,the economy is at full-employment equilibrium.
A)True
B)False
Q3) Why does the short-run aggregate supply curve slope upward?
Q4) Stagflation occurs when short-run aggregate supply decreases.
A)True
B)False
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Chapter 15: Aggregate Demand and Aggregate Supply Analysis
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Q1) What are the main measures of money used in Australia? List them from the narrowest to the broadest measure.
Q2) If Thrifty Bank receives a $10 000 deposit and keeps 10 per cent of its deposits in reserve,how much will the bank loan out?
A) $10 000
B) $1000
C) $9000
D) $11 000
Q3) The ________ the reserve ratio,the ________ the simple deposit multiplier.
A) smaller; smaller
B) smaller; larger
C) larger; larger
D) smaller; greater likelihood there is no change in
Q4) When a grocery store accepts your $10 note in exchange for bread and milk,this illustrates that the $10 note is serving as a A) medium of exchange.
B) unit of account.
C) store of value.
D) standard of deferred payment.
Page 17
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Chapter 16: Money, banks, and the Federal Reserve System
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Q1) Inflation targeting is when the Reserve Bank of Australia uses monetary policy with the aim of keeping the inflation rate at an annual average of between 2 per cent and 3 per cent in the medium term.
A)True
B)False
Q2) If firms are anticipating that the profitability of new investments will be lower in the future,then the ________ curve for loanable funds will shift to the ________.
A) supply; right B) supply; left C) demand; right D) demand; left
Q3) An increase in interest rates will usually,ceteris paribus, A) increase investment spending. B) decrease consumption spending. C) increase government spending. D) increase net exports.
Q4) Describe how the Reserve Bank of Australia uses open market operations to change short-term and long-term interest rates.
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Chapter 17: Monetary Policy
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Q1) To help fight a recession,the government could
A) decrease government spending to balance the budget.
B) decrease taxes to increase aggregate demand.
C) lower interest rates by decreasing the cash rate.
D) conduct contractionary fiscal policy by raising taxes.
Q2) As the tax wedge associated with a given economic activity gets smaller,we would expect
A) more of that economic activity to occur.
B) the distortions caused by taxes on that activity to be greater.
C) people to engage in less of that particular activity.
D) no change in the practice of that activity until the tax wedge ultimately disappears.
Q3) Which of the following is a true statement about the multiplier?
A) The formula for the multiplier overstates the real-world multiplier when we take into account the impact of changes in GDP on imports, inflation and the interest rate.
B) The larger the MPC, the smaller the multiplier.
C) The multiplier is the ratio of the change in spending to the change in GDP.
D) The multiplier makes the economy less sensitive to changes in autonomous expenditure.
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Chapter 18: Fiscal Policy
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Q1) If Estonia has an absolute advantage in the production of two goods compared to Norway,Estonia cannot benefit from trade with Norway.
A)True
B)False
Q2) Imports are goods and services bought domestically
A) but produced in other countries.
B) and resold at a profit.
C) and produced domestically.
D) and not subject to tariffs.
Q3) What are three primary reasons for the growth of international trade over the past 50 years?
Q4) The process of countries becoming more open to foreign trade and investment is known as A) autarky.
B) foreign exchange. C) globalisation.
D) protectionism.
Q5) One of the main sources of comparative advantage is internal economies. A)True
B)False
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Chapter 19: Comparative Advantage, international Trade, and Exchange Rates
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Q1) A current account deficit must be exactly offset by a capital and financial account surplus.
A)True
B)False
Q2) A country's balance of payments is best described as a system that records
A) the physical flow of goods and services between countries.
B) international trading, borrowing and lending flows.
C) only official transactions between the government and governments of other countries.
D) the flow of investment between countries.
Q3) A federal budget deficit may ________ exchange rates (foreign currency per domestic currency),and ________ the balance of trade for goods and services.
A) raise; reduce
B) raise; raise
C) reduce; reduce
D) reduce; raise
Q4) If Australians increase their level of saving,explain how this is demonstrated using the saving and investment equation.
Q5) What is the theory of purchasing power parity?
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